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The Evolution of International Business & its Environment

TOPIC-1

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SUB-TOPICS

• Significance , nature & scope of International Business• Internal & External Environment• Social & Cultural Environment• Technological Environment• Economic Environment• Political Environment• Stages of Internationalization• Differences between Domestic business and

International Business• Goals of International Business• Problems of International Business

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Growing relevance of International Business

• Competition a firm-local, national or foreign- is now global

• Liberalization has forced a company to challenging opportunity to improve its competitiveness- global sourcing of technology, materials, finance, human resources etc.

• Globalization is facilitating globalization

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Peter Drucker

• “ All institutions have to make global competitiveness a strategic goal. No institution whether a business, a university, or a hospital, can hope to survive, let alone to succeed, unless it measures up to standards set by the leaders in its fields, any place in the world.”

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AGM OF MRF ON MARCH 20, 2003

• CMD stated, that although the company is market leader in India, the increasing competition in the domestic market , from both Indian firms and MNCs, has prompted the company to give greater thrust to exports and the company , which was already exporting to 65 countries, might export 50 percent of its production.

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Types of International Business

• Trading- import & export of goods & services. India- Export Houses, Trading Houses, Star trading Houses, and Super Star Trading Houses

• Manufacturing & Marketing• Sourcing & Marketing• Global Sourcing for production• Services• Investments- FDIs

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Importance of IB to firms

• Pull Factors- forces of attraction that pull the business to the foreign markets.

• Proactive reasons

• - profitability & growth prospects

• Push factors- compulsions of domestic markets. Reactive in nature- saturation of domestic market

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Basic Reasons

1.Profit Advantage

2.Growth opportunities

3.Domestic market constraints• Nestle- only 2 % from Switzerland• Phillips- 8 % from Holland

4.Competition

5.Government Policies & Regulation

6.Monopoly Power- monopolization of certain resources domestically

7.Spin- off benefits- “ white skin advantage”, economic incentives by govt

8. Strategic Vision

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Business Environment

External environment

Internal Environment

Business

Decision

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Internal Environment

• Promoter’s values• Mission/ Objectives• Management Structure• Internal Power relationship• Physical assets & facilities• Co. image/ brand equity• Human Resources• Financial capabilities• Technological capabilities• Marketing capabilities

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Micro/ operating environment

• Financiers

• Customers

• Suppliers

• Competitors

• Marketing intermediaries

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Macro/ General Environment

• Political Environment

• Legal Environment

• Global Environment

• Technological Environment

• Social/ Cultural Environment

• Demographic environment

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FIG: INTERNATIONAL BUSINESS ENVIRONMENT FACTORS

B D

INTERNAL

MICRO

MACRO/ GLOBAL

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YAHOO.COM

• Bejing, China.• “ We’re not looking to put provocative information on the

site”, admits Maury Zeff, regional director of production for Yahoo Asia. Its all up to the interpretation of the government.

• Although the story about human organ selling in China never appeared on Yahoo’s website in China but it did run on the company’s US website.

• China is the world’s second largest internet market after the USA.

• This was not the first time that Yahoo adapted itself to local market constraints.

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Political Environment

• Democracy & Totalitarianism/ authoritarianism

• By year 2000:• 26- authoritarian• 39-Intermediate( partly Free- Russia, Mexico, Ethiopia,

Columbiaetc)• 82- Most Democratic- India, USA, Canada, S. Africa,

Australia

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Political Risks

• Macro Risks: Barriers to profit repatriation, Confiscation of properties, mandatory labour legislation, civil wars, currency devaluations, inflations, loss of technology or other intellectual property etc.

• Micro Risks- Kidnappings, increased taxation, official’s dishonesty

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Managing Risks

Direct Indirecti.Host operations dependent on i. risk insurance

home control ii. Home country govt. pressuring host country govt

ii.Diversification

Proactive

Joint ventures i. lobbying home & host govts.

ii.Licensing agreements ii. Corporate citizenship in host country

iii.Promote host goals

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Legal Environment

• - refers to rules & laws that regulate behaviour of individual or organization.

• -failure to comply with the laws means penalties to be inflicted by the courts

• INDIA-• GE got back the entire investments of $115

million from Dabhol once the latter vent burst. Its CEO Scott Bayman admitted that nowhere else this would have been possible.

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Systems of law

• Islamic Law

Legal Systems

Common law

Civil or coded law Marxist

Law

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MNC & the legal environment

• -protection of IPRs

• -product liability & safety

• Competition laws bribery & corruption

• Advertising & sales promoition

• Contracts

• Shipping of goods

• Labour laws

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MICROSOFT BATTLES SOFTWARE PIRACY IN CHINA

• China sales in 1996 nothing to $100m by 2000- a target fixed by MS

• -Over 96 % of the softwares used in China was pirated

• Also, Bejing is emerging as a mass exporter of counterfeit software

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Elements of Culture

• -Language

• Customs & manners

• Attitudes

• Aethetics

• Religion

• Education

• Supernatural Beliefs

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‘SINGLISH’ TO MAKE WAY FOR ENGLISH

• Tourism based economy

• Singapore Govt launched a “ speak good English movement”\

• Inhabitants are mostly Chinese, Indians, Tamil, Malaya people etc

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Implications for IB

Multi cultarism

Culture & competitive advantage

Spread cross cultural literacy

Compatibility between strategy & culture

Managing diversity

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Strategy – culture Fit

• P&G- In 1980s, modified its bulky diapers in Japan to ‘trim fit’

• Mc Donald - India, created vegMaharishi burger & non veg lamb minced burger

• Domino’s Pizza - In Banglore, Pizzas to contain curry paste

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• Nokia- introduced Hindi SMS in India

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Technological Environment

• Kind of technologies- emerging technologies, critical technologies,

• Technology Issues:• - Barriers

• -Foreign Technology Acquisition• -Creating Local capability• Choice of Technology• Terms of Technology Transfer• Globalization

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Economic Environment

• elements:• Income wise classification of countries- LIG,

MIG, HIG• Economic policies• Economies in transition• Financial system • economic scenario• Region wise classification• Structural adjustments

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Classification of economies by region

• LIG- < $735

• LMIG-$736-2935

• UMIG- <$ 2936--9075

• HIG >9076

• SOURCE : WORLD DEVELOPMENT REPORT 2004

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COUNTRIES

• India- LIG

• CHINA-LIG

• USA - HIG

• UK -HIG

• SWITZERLAND -HIG

• MALAYSIA -UMIG

• RUSSIA- LMIG